This newsletter analyzes deal volume, deal value, and other M&A indicators in the middle market in light of the current environment.

1. MERCER CAPITAL
Middle Market
Transaction Update
Winter 2022
In This Issue
U.S. Deal Value & Volume
EBITDA Multiples
EBITDA Multiples by Buyer Type
Debt Multiples
U.S. Deal Volume by Industry
Number of Deals by Buyer Type
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BUSINESS VALUATION &
FINANCIAL ADVISORY SERVICES

2. Mercer Capital’s Middle Market Transaction Update // Winter 2022
© 2023 Mercer Capital // www.mercercapital.com 1
Introduction
Overall deal activity at $45 billion in the third quarter of 2022 was roughly unchanged
from the second quarter but down sharply from $63 billion in the third quarter of
2021. In aggregate, deal activity through the first three quarters of 2022 was down
significantly from deal activity in the first three quarters of 2021 as Fed actions to
tighten monetary conditions this year have substantially raised the cost of capital and
reduced the ability of firms to access the capital markets
Somewhat surprisingly multiples paid by both strategic and financial buyers held their
ground and even increased in some size tranches as tightening financial conditions
have not yet produced lower valuations as seen in the public markets. We’ll discuss
this pricing resiliency and more in this edition of Mercer Capital’s Middle Market
Transaction Update.
Middle market deal activity in the third quarter of 2022 continued against the backdrop
of ongoing inflation, rising interest rates, and other deteriorating macroeconomic
factors in the U.S economy. While overall U.S. GDP increased 2.6% in the third
quarter, the CPI increased 8.2% year-over-year for the twelve-month period ended
September 2022, major equity indices fell approximately 5%-7%, and the Fed raised
rates by 0.75% at both its July and September meetings. With the Fed expected to
continue raising rates until it deems inflation to be under control, many economists
believe the U.S. economy will enter into a recession in 2023 of unknown magnitude
and duration.
As a result, deal makers enter 2023 with a greater than normal amount of uncertainty
given elevated borrowing costs, less certainty about the ability to access external
financing, a slowing economy and weaker acquisition currencies for publicly traded
strategic buyers given a 19% reduction in the S&P 500 and a 27% decline in the
Russell 2000 during 2022.
$22
$35
$54
$49
$56
$63
$74
$50
$44 $45
0.4
0.6
0.8
0.8 0.9
0.9
1.1
0.7 0.7 0.6
0.0
0.4
0.8
1.2
1.6
2.0
$
$10
$20
$30
$40
$50
$60
$70
$80
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2020 2021 2022
Deal Value ($B) Transaction Volume (000s)
Source: Capital IQ
U.S. Deal Value & Volume
Q2-2020 to Q3-2022

3. Mercer Capital’s Middle Market Transaction Update // Winter 2022
© 2023 Mercer Capital // www.mercercapital.com 2
0
200
400
600
800
1000
1200
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2020 2021 2022
Real Estate
Consumer Discretionary
No Primary Industry Assigned
Industrials
Financials
Healthcare
Other
Source: Capital IQ
U.S. Deal Volume by Industry
Q2-2020 to Q3-2022
TEV/EBITDA Multiples
While the overall economic picture was darkening during the third quarter, deal
activity has carried on, albeit at lower levels relative to 2021’s record-breaking middle
market deal activity. Persistence in deal activity in the middle market demonstrates
that despite turbulent economic conditions, there are still quality businesses coming
to market and buyers are willing to pay reasonable values for these businesses. The
chart on the right is further evidence of this continued persistence, as multiples in PE
deals across all size tranches ticked up from 7
.4x in the second quarter of 2022 to
8.1x in the third quarter. Segmented by size, multiples rose in every tranche besides
the $50 - $100 million range, which only fell slightly.
.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3
$10-$25 $25-$50 $50-$100 $100-$250
Source: GF Data®
TEV/EBITDA Multiples
Financial Buyers | Last 8 Quarters

4. Mercer Capital’s Middle Market Transaction Update // Winter 2022
© 2023 Mercer Capital // www.mercercapital.com 3
EBITDA Multiples by Buyer Type
2020 to 2Q 2022
7.9x 8.3x 8.1x
6.9x
7.4x 7.7x
2020 2021 YTD 3Q22
Strategic Financial
Source: Capital IQ (strategic) and GF Data (financial)
Strategic multiples exclude outliers (defined as EBITDA multiple > 18x)
Debt Multiples
Total debt multiples on PE deals fell again in the third quarter of 2022. The drop in
debt utilization in deal activity is likely a sign that rising interest rates are continuing
to weigh on deal activity and financing terms. Rising interest rates equate to an
increased cost of borrowing and overall cost of capital for businesses, which in turn
increases the discount rates used in buyers’ valuations of potential targets.
While elevated discount rates in theory should lead to lower valuations (i.e., multiple
contraction as seen in the public markets), heavy competition for quality companies
combined with plentiful liquidity embedded within corporate balance sheets and PE
firms has supported deal valuations and multiples to this point in 2022.
That may change in 2023 as the impact of rising rates and presumably declining
levels of liquidity (or LP liquidity for PE buyers) should be fully reflected in current
deal negotiations compared to those that were negotiated in the first half of 2022
and closed during the third quarter.
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3
Total Debt/EBITDA Senior Debt/EBITDA
Source: GF Data®
Debt Multiples
Financial Buyers | Through Q3-2022

5. Mercer Capital’s Middle Market Transaction Update // Winter 2022
© 2023 Mercer Capital // www.mercercapital.com 4
100
150
200
250
300
350
400
450
500
550
20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3
Financial Strategic
Source: Capital IQ
Number of Deals by Buyer Type
Q2-2020 to Q3-2022
Conclusion
While deal value and volume were stagnant in the third quarter, valuation multiples
generally expanded in the middle market, which could be the result of a late-cycle
“flight to quality”
. As the prospect of a recession looms over the U.S. economy,
prospective buyers and sellers looking for a transaction would be well-advised to act
sooner rather than later to avoid any recession-induced complications in the deal
process.
Check Out This Video!
What do you do if your
business is approached
by a potential acquirer?
In this video, Nick Heinz
presents four broad steps
you should undertake to
determineifthepotential
acquisition makes sense.

6. Before you do, check out our recent series on
Buy-Side Considerations
For more information, visit www.mercercapital.com
Thinking About Acquiring?
Identifying Acquisition Targets and
Assessing Strategic Fit
How to Approach a Target and
Perform Initial Due Diligence
Strategic Premiums: Can 2+2
Equal 5?
Considerations in Merger
Transactions
The Importance of a Quality of
Earnings Study
Negotiating Working Capital
Targets in a Transaction
Considering Contingent
Consideration
Buy-Side Fairness Opinions: Fair
Today, Foul Tomorrow?
Buy-Side Solvency Opinions
The Importance of Purchase Price
Allocations to Acquirers
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2
6
7
8
9
10
3
4
5

7. Securities transactions conducted through StillPoint Capital, Member FINRA/SIPC, Tampa, FL. Certain members of Mercer Capital are Registered Representatives of the broker dealer StillPoint Capital, LLC. Mercer Capital and StillPoint Capital, LLC are not affiliated entities.
Copyright © 2023 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media quotations with source attribution are encouraged.
Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Tennessee Family Law Newsletter is published quarterly and does not constitute legal or financial consulting advice. It
is offered as an information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name
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FINANCIAL ADVISORY SERVICES
In addition to our corporate valuation services, Mercer Capital provides investment banking and transaction advisory services to a broad
range of public and private companies and financial institutions.
MERCER CAPITAL
Transaction Advisory Services
Transaction Advisory Services Advantages We Offer
• M&A Representation
• ESOP Installation, Termination, and Transactions
• Squeeze-Out Transactions
• Fairness and Solvency Opinions
• Minority Shareholder Stock Repurchases
• Corporate or Partnership Recapitalizations
• Maximize Net Proceeds
• Negotiate the Best Possible Terms
• Speed Up the Deal Process
• Ensure Transaction Closure
• Help Ensure Confidentiality
• Minimize Burden on the Ownership
Mercer Capital has been successfully executing mergers & acquisitions for a broad
spectrum of middle-market companies since the mid-1980s.
We specialize in providing merger & acquisition services to sellers or buyers of private
businesses or public companies divesting divisions and subsidiaries. In addition,
Mercer Capital assists clients in industry consolidations, roll-ups, and refinancings.
Mercer Capital leverages its historical valuation and investment banking experience
to help clients navigate a critical transaction, providing timely, accurate and reliable
results. We have significant experience advising boards of directors, management,
trustees, and other fiduciaries of middle-market public and private companies
in a wide range of industries. Our independent advice withstands scrutiny from
shareholders, bondholders, the SEC, IRS, and other interested parties to a
transaction, and we are well-versed in the new industry standards.
The professionals of Mercer Capital can guide you through the uncharted waters of
selling your business, acquiring another business or division, mergers, valuations,
fairness opinions, and other transaction advisory needs. Rely on the experience,
independence, and transaction know-how of Mercer Capital.
Nicholas J. Heinz, ASA Timothy R. Lee, ASA Jeff K. Davis, CFA
heinzn@mercercapital.com leet@mercercapital.com jeffdavis@mercercapital.com
901.685.2120 901.322.9740 615.345.0350
Matthew R. Crow, ASA, CFA John T. (Tripp) Crews, III Thomas G. Kasierski
crowm@mercercapital.com crewst@mercercapital.com kasierskit@mercercapital.com
901.685.2120 901.322.9735 832.378.8065